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New deals from movie theater chain AMC and antivirus software maker McAfee this week offered glimpses into how investors view the post-Covid economy. Further down the pipeline, SeaWorld and Citrix Systems offer up a similar showdown between the physical and the virtual.

Can the entertainment industry attract customers back to physical venues and stage a meaningful recovery? Can technology companies that benefited from work-from-home sustain that success? Can these things happen at the same time?

AMC is bullish that consumers will return to theaters in droves this year, based on a recent uptick in sales. Box office takings were $919m in December 2021, which is 80% of the way back to 2019 figures, according to the company’s presentation to debt investors.  

The movie industry was buoyed by the release of Spiderman: No Way Home, which broke records in December even as Omicron was rapidly spreading. In its pitch to lenders, AMC highlighted upcoming Marvel and Batman movies, the Avatar sequel, and family-friendly options such as Minions and Pixar’s Lightyear.

This optimism helped AMC price $950m of 7.5% first lien senior secured notes due 2029, after upsizing the offering from its initial target of $500m. Final pricing came tighter than higher-rated peer National CineMedia’s secured debt (read 9fin’s Credit QuickTake here). 



AMC is the latest issuer to take out expensive pandemic-era debt. The new notes redeem two 10.5% first lien notes due 2025 and 2026—as well as a 15%/17% PIK toggle—so the deal gives the company real breathing room within its capital structure.

But in terms of its business model, AMC still has a lot to prove. There’s no guarantee theater demand will recover from the pandemic, and Covid may have strengthened the position of the streaming platforms disrupting the industry. 

“The name of the game is yield and security, and if they can continue to raise equity then maybe they can help reduce their debt stack, but it's going to be a very long process,” said a portfolio manager familiar with AMC.  

The ready availability of equity—at least at last year’s pricing—is also not guaranteed. AMC leaned into its meme-stonk status (its bond docs helpfully note that distributions of NFTs and crypto do not count as restricted payments) but that mania may be subsiding. 

There are some tailwinds supporting physical theaters. WarnerMedia, for example, is abandoning its 2021 strategy of releasing its movies in theaters and on its HBO Max streaming platform simultaneously, in favor of more traditional theatrical releases. 

Nevertheless, there is still plenty of streaming competition from Netflix, Disney and Amazon. And even as viewers return to theaters, AMC has to contend with the unpredictability of Covid outbreaks like Omicron, which can impact sales and make costs difficult to control.

“There's going to be a huge shift from goods consumption to services consumption,” the portfolio manager said of the post-Covid economy. “But in a situation like AMC, a lot of things have to go right for you to win.” 

SeaWorld also seems bullish on the entertainment recovery, this week submitting a bid to buy theme park operator Cedar Fair for $3.4bn. The proposal—which is still being reviewed by the target—could substantially increase SeaWorld’s $2.15bn debt load.

The history of theme-park debt is littered with examples (looking at you, Hard Rock Park) of the risks of levering up physical venues. These days, funding is historically cheap—but also, operational costs are historically unpredictable thanks to the pandemic. 


One does not simply increase free cash flow

These kinds of deals can raise eyebrows even in more normal times. The impact of Covid—not just on customer demand and attendance at venues, but also on operational headaches like supply chains, staffing, and health and safety compliance—adds extra pressure.

“Even prior to the pandemic, rating agencies were allowing surprisingly long timelines for companies to bring leverage back down, and sometimes the companies still wouldn't get there,” noted a CLO manager.  

Conversely, companies such as McAfee and Citrix Systems are betting their success during the pandemic can be sustained even if the services industry reopens and workers return to the office (investment banks are leading the charge here, incidentally).

McAfee went all-in on consumer sales when it sold its enterprise business to Symphony Technology Group for $4bn last year. Since that pivot, McAfee’s revenue is up 23% year-over-year as of September, according to its presentation to debt investors.

This success helped buoy demand this week for a US$6.96bn-equivalent euro-dollar TLB and $2.02bn senior unsecured bond to fund McAfee’s buyout by Advent International. The issuer dropped a senior secured note and upsized the loan—although the loan priced at the wide end of talk.

While the deal was broadly judged as a success, buysiders were not without their reservations. One important trend to consider was that much of McAfee’s recent growth is tied to a surge in the sale of PCs, many of which come pre-installed with a trial version of its antivirus software.

Indirect sales from partners such as Dell, BestBuy, Office Depot, Verizon and T-Mobile accounted for a 47% increase in McAfee’s recurring revenue year over year through September, according to the company’s investor presentation. 

Many attribute this surge in consumer PC sales to the pandemic effect, as consumers—by choice or necessity—spend more time online. Whether this Covid-driven growth is sustainable is up for debate, however.

One research firm recently predicted a boom in PC sales thanks to the metaverse (albeit based on limited sourcing), but others project a slowdown as society unplugs from the remote-work matrix.

PC sales are only part of the story. McAfee has been around for a long time, and as we discussed in this week’s Cloud 9fin podcast—with Roberta Goss of Pretium Partners—highly levered legacy software businesses can be tricky credits, given competition from newer entrants. 

On that note, Citrix Systems this week struck a deal to be acquired by Elliott Management and Vista Equity Partners. It has admitted in earnings calls that it failed to capitalize on the work-from-home wave during the pandemic, despite offering remote desktop software. 

With $14bn of new bonds and loans in the pipeline to fund its buyout at a $16.5bn valuation (it will be subsequently merged with Vista portfolio company TIBCO Software) the deal will provide a test of investors’ faith in virtual infrastructure. 

It comes at a volatile time for the tech sector, as big names like Meta take a beating in the equity market. Still, most indications are that debt investors are comfortable with big LBOs as long as the broader economy keeps growing. 

“Investors are looking at the market as being pretty clean,” said Michael Anderson, head of US credit strategy at Citi Research. “Growth will be strong enough to keep default rates low and to keep companies servicing their debt.”

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